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Until last week, the U.S. stock market hadn't suffered a 2% two-day setback since early November, so our pain threshold is low, and it's easy to see the midweek convulsion as symptoms of bigger ills to come.

Wednesday's 1.25% slide marked 2013's worst trading day, with bigger drubbings doled out to economically sensitive segments like transport, home builders, and small stocks. Yet "investors were simply selling the big winners of 2013," notes Justin Walters of Bespoke Investment Group. In fact, the 50 stocks in the Standard & Poor's 500 that had the biggest 2013 gains fell a whopping 2.7% on average. That smacks of profit taking in an ongoing rally.

Many things pass for provocation in a jumpy market. Spending cuts kicking in March 1 could shave 1.5 percentage points off second-quarter economic growth, and investors are bracing for fractious headlines from the budget debate. Minutes from a central bank meeting showed policy makers discussing the risks of their rabid bond buying. That fanned fears the Fed is moving closer to weaning the market of its indulgent support, even though there was no policy change. Consider it a preview of the bumpy ride to come some day. "So much of the baseline assumptions for equities are anchored in highly accommodative U.S. central bank," notes Nicholas Colas, chief market strategist at ConvergEx Group. "But, as the saying goes, the first step to curing addiction is to admit you have a problem, and maybe that's what the Fed just did."

Investor expectations have also increased with stock prices. An index of home builder sentiment slipped in February for the first time in 10 months, even if it remains at the highest level since 2006. Housing starts shrank 8.5% in January, but permits for new construction ticked up to a four-year high. For the rally to run on anew in the short term, either expectations have to moderate, or economic cues have to keep improving.

AMERICANS ALREADY COPING with higher payroll taxes have something else to think about. Since mid-January, the average price for a gallon of regular unleaded gasoline has risen for 35 straight days to top $3.78 nationwide. That's vexing news for discounters and chain restaurants—but a bonus for the energy sector.

Refiners that turn crude oil into gasoline have jumped 24% this year and have more than doubled since June. They benefit not just from rising prices of refined products, but the abundance of relatively cheap crude oil gushing from U.S. shales. The "crack spread" between raw materials and finished products has become such a boon even oil executives wonder how long it might last. That's one reason refiners haven't ramped up capacity too quickly, which in turn helps keep a lid on supply.

Even after their recent rally, refiner stocks still fetch roughly 8.1 times projected profits, below the sector's median of 8.7 times over the past decade. Owen Fitzpatrick, head of U.S. large-cap and equity strategy at Deutsche Asset & Wealth Management, thinks valuation multiples can expand as skeptical investors grow to embrace the current paradigm.

Meanwhile, crude-oil stockpiles swelled last week to 376 million barrels, the most since July, while gasoline stockpiles shrank more than analysts expected. Refiners rejoiced as crude sank to a new 2013 low.

Unfortunately, the timing couldn't be worse for
Devon Energydvn 0.6912442396313364%Devon Energy Corp.U.S.: NYSEUSD48.07
0.330.6912442396313364%
/Date(1481320903591-0600)/
Volume (Delayed 15m)
:
3662795AFTER HOURSUSD48.06
-0.01-0.02080299563137092%
Volume (Delayed 15m)
:
12418
P/E Ratio
N/AMarket Cap
24996663713.3178
Dividend Yield
0.49927189515290205% Rev. per Employee
1771520More quote details and news »dvninYour ValueYour ChangeShort position
(DVN), which announced some good news just as oil swooned. Devon has been typecast as an explorer and producer of natural gas, whose prices are in a severe slump. Shares have been a serial disappointment, so as part of its continuing makeover, Devon plans to cut gas output while increasing oil production 12% to 19%. Pretty soon, pricier liquids will make up 43% of Devon's mix, an impressive improvement from 37% last year and 34% in 2011.

Yet investors seemed more focused on its flat overall production and sent shares down 9%. Shares slumping near $55 are down 27% over the past year, far worse than explorers' 7% loss. Its CEO has vowed to "leave no stone unturned" and is exploring the idea, previously canvassed in 2007, of spinning off pipeline assets into an MLP to unlock value. Few explorers have lower expectations, and Devon trades at a 25% discount to its net asset value, notes Credit Suisse analyst Arun Jayaram. His price target: $75.